tv [untitled] December 1, 2010 12:30pm-1:00pm PST
to support a mandatory program and work with the mayor's office and the contracting department to try and fashion a workable mandatory local hire policy, which is what we have here today. this process i have said a couple of times now is like threading the eye of a needle. it is very, very complicated negotiating with many of the stakeholders and hearing between the lines and directly what people's concerns are. the legislation we have here is really above anything else, is changing what has traditionally been the policy around construction trade hiring in san francisco, going from good faith efforts to a mandatory program. the legislation before you is an effort to address multiple issues. one, combat san francisco's high unemployment rate, which is hovering near 10%. in other words, there are about
44,500 people who are out of work. if you look specifically at the construction industry, it is closer to 40% unemployment according to the building trades and certain neighborhoods in our city actually have a higher employment rate and chronic unemployment. since the passage of prop 209 that eliminateded affirmative action programs, the city has been without a local hire policy. our policy in chapter 6.22 of the administrative code was never revised, and the city attorney recommended that local hire to be removed from all local contracts the city enters into. over the last year, tension at construction sites here in the city have risen to the point where contractors have been very alarmed about work stoppages and labor unrest. even as u -- at the hospital project in the bay area, it has
experienced work stoppage. in these economic times, the city finds itself in the unique position of being the single largest if you saider of construction work. the city will spend nearedly $27 billion over the next 10 years. the city needs to leverage its funding position to ensure our residents benefit from this investment from the start. the issue of local hire is not new. the legislation should not come as a surprise to anyone. we have been meeting and talking with multiple stakeholders for a long time, and i want to thank the many unions, builders, community advocates and departments that have assisted in crafting the legislation and its amendments. i particularly want to thank guillermoo rodriguez, the office of work force development, others in my office, all of whom will be
working ash the clock for months to make this legislation work. in fact, it has been, for my office, the top priority that we have worked on because we want to make sure we get it right as we are threading this needle. first let me address some of the key amendments we made to enhance the legislation. to address the ideas of minority and small local small contractors that they have raised. the legislation increases the threshold where the policy would apply from $100,000 to $400,000 to be consistent with the micro set-aside program we approved earlier this year. we made sure that large contractors can use local business enterprises to meet their mandatory staffing goals, which further support the use of our local business enterprise program. our l.b.'s have a greater ability because they are based locally to hire local people.
recognizing challenges starting with 30% mandatory by trade and escalating to 50% in two years, we amended the legislation after reviewing the luster report and reviewing data to start at 25% and escalating to 50% over six years. we feel this is workable based on all the data we have reviewed. asking people how to change how they do business with the cities is difficult. we went ahead and added a periodic review in year three where the mandatory level would freeze where the office of economic work fork and the controller's office do an assessment of the program to ensuring it working. they will do market analysis and extend the period if necessary.
they made revise the escalation percentage and time to get to 50%. if for example the private sector economy changes and the demand for workers increases, then it may not be plausible to continue to escalate at the same percentage level. equally, the office of economic and work force development and the controller will also evaluate the innocentive program, since the idea is to get contractors to assist in building a strong pool of highly qualified and experienced local residents in the construction industry, which will have a net positive impact on the local economy. we also provided contractors with more opportunities to help the city grow our pipeline and pool our qualified construction workers by giving contractors pathways to avoid liquidateded damages. in the amended version, contractors have multiple options, including responsoring apresentses. giving them extra time to work off the hours they fell shors,
and making a way for contractors to bank ours and credits so enauthor san francisco residents are employed. this way we are looking at a workforce development system that is not about a sickle job. the data suggests there are specialty trades like marine pile drivers or underwater welders where the pool of local workers is so small or nonexistent that have an exemption for these types of trades are needed. colleagues, i hope you can see that the process i have used to present this legislation was one of collaboration and meeting directly with shareholders. to conclude, i want to spend a few moments on the cost this legislation will have. we have both the budget analyst 's report and ted from the office of economic impact reports on the costs they anticipate this legislation
will generate. i want to admit, yes, the lester munson slation before you will cost money. if we want to do the cheapest thing possible, then we do nothing at all, and we have to live with the consequences. but i would say what we had to live with recently in terms of high unemployment and the misery and harm that does to our communities is not something that is tolerable here in san francisco. i can't ignore the 44,500 unemployed people. this legislation will not help all of them, but it is a start. the city will spend nearly $30 billion in public works projects over the next several years, and residents should have the opportunity to work on these projects. in reviewing mr. egan's report, i feel his analysis missed some company points. it is based on extreme conditions and does not take into account key provisions in the legislation. for example, given the slow ramp-up of 20% contract
contractors in the out there, it clearly gives them an affirm pool of workers to meet the levens in the first few years. many of these workers will be able to be absorbed very easily because of high unemployment rates and the work that will be performed that will be affirm because of projects moving forward. i did not see how mr. egan's report factored in pathways to avoid liquidated damages. the report suggests that contractors will flagrantly disobey their contract and just jack up prizes. i don't like that is going to be the case given the flexibility we have built in the legislation. the report did not factor in the review period, which is a recommendation we took, where in year three everything comes to a stop while we do another
market study to ensure supply is in place to meet demand. the review period goes further and says if the supply period is not fast enough to people tacts, then the period needs to be changed. the report assumes the worst case. the report did not analyze the cost of doing nothing. i have jokingly said the cheapest thing to do is nothing, but that is far from the truth. mr. egan does speak to the positive economic benefits this legislation will have on the economy, but it is not as pronounced as it should be. probably the most important economic effect of local hire on our economy is the spending effect. san francisco residents employed here will spend more of their wages and salary here compared to commuters from bay area communities, whose paychecks leave with them when they go back to their own communities.
the greater level of spending will multiply through our economy after hand a greater impact on total spending. it is the worker who goes home and goes to third street are the fill more, buys groceries and shoes and clothes for the family, and that means the money will stay here in the community, be recycled back and have multiple sources of benefit for people in our communities. also, for example, the red level spending will multiply throughout the economy and have a greater impact on total spending and employment. according to dr. -- the professor of economics at san diego state and the team that completed the labor market analysis for the city, it is around 1.51. at the metropolitan level, it is around 1.73.
the difference between the two multipliers can be interpreted as the combined net effect of spending on local hire. in other words, it is the economic benefit to san francisco's economy of hiring a local resident for a local construction job. for example, for a construction job that pays a gross salary of $50 thousand. if if he would bia local residents, it would generate $39,000 more spending in is spending than by someone else in the bay area. another effect is the effect on commuting. the labor market analysis commissioned by the city revealed that 59% of construction jobs in the city are workers who live in outlying bay area counsel and commute to construction jobs? the city. researchers have estimated that the environmental, congestion and other social costs of
driving can be as high as 32 cents a mile. to put this into perspective, if a construction job were filed by a san francisco ress department who drive five miles a day to work, rather than a mill gray resident to drove 30 minutes, the transportation cost could be several hundred dollars. i am not saying this legislation will not cost money. i am saying that the costs of doing nothing far out weigh the cost of otherwise. we support our local businesses. that is why we authorize a 10% local discount for local businesses in public contracts. that is an added cost and the right thing to do. we requires contract crors to provide domestic partner benefits, health care and ensure that contractors are using green products to protect our environment. all these things cost money and
is the right thing to do more. this employs more people on construction projects and leverage more money to our programs. local high has ancillary benefits in our economy. i want to add that there is a real hunger out there in san francisco. there is a real hunger, and it is not a recent hunger. it is a hunger around for decades, people wanting to have greater access, wanting to have greater opportunities. if the construction trade or in other industries. last night i saw this poster, which to me was inspiring. it says help build san francisco, and it is encouraging people to find places to apply for work. it has two committee members, a pastor who is carpet, lynn noel
yum and soft tile workerer, and a construction laborer, both of whom are looking for work, both of whom are encouraging others to find work in our public works projects. but also looking at what our hunger here in the city, defined opportunities as needed, and also recognizing that we are building. we are putting people to work. we are building new buildings, new subway lines, new sewer system plants, now monuments of our human ingenuity. it is time we did the right thing and made local hire mandatory. we have many people part of the recitation today. in particular we have rodriguez, from the office of economic development, who will share first on this presentation. mr. rodriguez, if you want to come forward. we will be hear after mr.
rodriguez, from mr. egan from the office of economic impact part of the controller's office. then we will go on to the report from the budget analyst, mr. harvey rose. i also want to thank john white, george, and buck from the city attorney's office for their major work and heavy lifting on crafting this very denies and complicated piece of legislation. it is stronger for your effort and work with the many shareholders to make it happen. thank you very much. mr. rodriguez? >> thank you. i am director of city build, office of economic work force development. a lot of what i was planning to address were some of the amendments that we worked with the supervisor on. i do appreciate that a lot of the challenges associated with looking at all of the different aspects associate with local
hire trying to make the legislation workable on the ground. our office has to work with community groups and contractors doing public work, and the awarding and contracting department, our position has been to try to find a workable solution so that local hire actually works on the ground. i congratulate the supervisor for taking many of the amendments that the city offered. there are a few items that we would still like to see some additional changes. we've talked to the supervisor about thinking of beginning at 20% rather than 25%. we've talked about some technical clean-up language associated with the baking of hours concept. we also are spreegged with some of the ideas that -- intrigued with some of the ideas that the controller's office has with respect to enhancing opportunities for contractors to look at promoting the
pipeline of the program. so ultimately a lot of the mendments that the supervisor spoke to were items i was going to cover. our office is here to answer any technical questions that the board and the supervisors may have. thank you. supervisor avalos: thank you, mr. rodriguez. just to reemphasize as well, this has been an ordinance that has been a work in progress. certainly we introduced something a month ago. we have amendments that we reintroduced last tuesday, and i would say that it still is a work in progress. that is just the complicated nature of trying to work with multiple sources of information, multiple shareholders that have a real tern about making this policy work. next up we have the controller's office, mr. egan and controller ben rosenfield we share. >> good afternoon.
ben rosenfield of the controller office. i thought i would mears some of our key findings that we issued earlier today. we find that the legislation before you here today does have positive net benefits to the local economy. that is really the result of two things. it is the result of increased employment and wages in the private sector, partiallyoff set by higher construction costs. the result of this is an estimate of a net cost per job created of approximately $18,000. we find that the economic benefit from this legislation could be greater if two inefficiencies in the current legislation are corrected that would result in reduced costs for the city or a lower cost increase on construction that would result in a lower cost per job created. generally speaking, those are our findings. we have proposed
possible fixes to the two inefficiencies we see, and mr. egan can walk you through the findings and proposals. supervisor avalos: thank you. mr. egan? >> good after noonch, supervisors. ted egan. i would like to share with you our economic report. >> i think that mic isn't on. >> is this the mic i want? >> you just need to get closer. >> how is this? great. if we could turn on the presentation. . thank you very much. the major elements of the legislation as we've seen it, and these contain some of the aspects that most affect its economic impact, it applies to all city if you saided public works projects that have not already been advertised going forward. it requires 25% of hours worked by local residents, and that escalates by 5% a year to 50%.
that requirement is arm separate requirement for each individual trade. it is not a requirement for 50% of all hours. it is 50% of all hours for each trade. 50% of apprentice hours must be worked by residents in the first year. any out of state workers who are brought in to work are exempt from the requirement. as i said, it requires each trade individually. the city is required to pay innocentive bonuses to exceed the requirement, and contractors who cannot or do meet the requirement have two options. they can pay lick tated damages or sponsor others. our analysis largely focuses on the option of paying liquidated damages. the reason for that is because that is spelled out clearly in the legislation. what a contractor's choice is
regarding sponsor apprentices is not clearly specified. one could envision a scenario in which a contractor might prefer to pay damages, tuckly if those costs can be pass on to the city. before i go into detail, i would like to summarize our key conclusions. this is a report that summarizes essentially the key economic effects we think the legislation will have both as it has been proposed and amended, and also with the mitigations that we recommended in our report. let me first describe what type of analysis these numbers come from. we have looked at the capital plan, which is a 10-year document that contains the city's projected capital spending, and looked at those projects that would be covered by this legislation, legislation that involves state or federal spending would not be covered. that is a significant portion
of the plan. approximately 2/3 of the capital plan spending would not be covered. within the amount that is covered, we looked at what are the occupations that contractors would need to hire in order to complete the work that is called for in the capital plan? we looked at how much of that work would be mandated to be undertaken by city workers at a 50% target. so this is a number that is a year six or seven when we get to the 50% target number. it is not an initial number. i would agree with supervisor avalos' comments that the economic issues we see with the legislation don't materialize in the early years. the targets in the early years are quite manageable. the unemployment in the construction industry right now is quite high, and we thick that the city could bear the cost in the short-term without great difficulty. it is in the years when it
ramps up to 50% and we don't have confidence that the simply of local workers will ramp up, the issue of the appropriateness of that target for every trade comes up. this is talking about a typical year of capital plan spending in the new few years. at a 50% target, given the residents, the people who we know live in san francisco now or who we believe live in san francisco now in each trade. in that typical year, this legislation with create 335 or 336 construction jobs for san francisco workers. that will pump into the economy an additional $27 million of spending, which represents the wages and salaries of those workers who would otherwise be unemployed. so this legislation will be effective as creating jobs for construction workers who are currently unemployed, and that
will represent an injection of money into the city's economy that will have a positive economic impact. we believe for reasons that i will go into in a few minutes that this will increase the city's contracting costs to the tune of about $9 million. supervisor avalos: that is annual? >> that is an annual number, as is the $27 million. supervisor avalos: and this chart here is based on 50%, knowing that we have our three-year review period where we can make adjustments. some trades might not get there , decisioned we make along the way based on the information we get. >> that is a fair point. the scheduleed 50% is in the legislation. the periodic review by oed and the controller's office basically generates recommendations that may be less than 50%. but the board of supervisors would have to vote to lower
local hire requirements, based on that legislation, which would cost jobs. one might argue that is a very challenging thing for any board to do. not to preclude that as an opportunity, but that seems to be a high bar and cobsquent doesn't seem unreasonable to look at from our point of issue, what is the worst-case scenario at the 50% requirement. supervisor avalos: supervisors elsbernd? supervisor elsbernd: help me put the money in scope. what would be the total dollar amount? >> of the covered promise, it is about $950 million. so we are talking about roughly a 1% increase of construction costs due from this legislation. as i will go into, the higher contracting costs essentially will be due to the fact that we believe contractors will
inflate their bids because they will have to raise the salaries that offer locals. we project that they will have to raise their labor costs and raise the salaries that they pay to local workers. in some trades, not at trades, but the in some trades the legislation calls to hire more people than live in san francisco or unemployed in san francisco at some years in the future. the net effect in terms of spending is about an $18 million boost. the $27 million of additional wage standing and the $9 million of additional cost to the city spending. we feel the net is worth about 14 jobs. when you consider the direct and indirect jobs, the multiplier effect jobs, the cost per job to the city is
about $18,000. with the mitt gations we have raised in our report, we believe that number can be lowers to about $6,000. and the city's cost could be lowered without harming the economic impact in the job creation in any way. in fact, making the economic impact more because you don't have to pay for some of the labor costs. that is what is slide is preventing. we endeavor to provide numbers behind what we say. i don't want to oversell the precision of any of these numbers. a lot of these projections involves looking forward 10 years, and there is a great deal of uncertainty. but i do think, echoing mr. rosenfield, there are three things clear. one is that it has a positive
economic impact as it is written on spending and jobs in san francisco. two, that it is inefficient in a couple of key ways, and that if those inefficiencies were mitigated and removed, the cost to the city would be less and the economic impact book higher. with that summary in place, i will go through the meat of our report and discuss how we arrived at these conclusions. when we look at the legislation for how it affects the economy, it is really, like a lot of pieces of legislation, it has some benefits and some costs. it is about the net effect. it certainly benefits the economy when unemployed local residents have jobs. that increases spending in neighborhoods, and that ripples throughout the economy. to the extent, however, that the legislation increases construction costs, that has a negative impact on the economy. the city must reduce its spending in other areas, on
general fund projects. for bond-funded projects, the city have to make due with less scope, less public works created, or it will have to get the money somewhere. the extent to which construction costs are inflated is a bad thing. supervisor avalos: when you say how much -- how much are they being inplayeded on a year by year basis? we are putting in about $1. billion a year, and we are saying our costs are inflailted by what amount? >> we actually think it is about $930 million of covered projects. so it is about a 1% cost inflation, if that puts it in context. supervisor avalos: would you call that significant? 1% out of